Managing cash flow in a small business is critical, but it’s also important to consider other aspects of your finances too.
By Jim Vass.
There was some shocking business news this week – with 161 popular Australian retail stores announcing they’ll be closing outlets this year.
Harris Scarfe, McWilliam’s Wines, EB Games and fashion chain Bardot are all planning on closing a number of stores across the country by March. This was announced shortly after the news that Jeanswest had entered voluntary administration.
Retailers, particularly those with a heavy investment in bricks and mortar, have been doing it tough for some time. Obviously, since the inception of online shopping, traditional retailers have needed to get innovative, and those stores that have failed to do so – by sourcing unusual products, rewarding customer loyalty, improving service or adding something ‘quirky and memorable,’ to their service offering – have suffered.
And there’s a lesson here for all business, irrespective of industry.
In this day and age, as technology continues to advance and disrupt, businesses have to think outside traditional paradigms more than ever before.
This is just another reason to build regular planning time into your year. To make time to consider what’s happening in your business, in your market, and across the economy in general.
And January is the perfect month to plan. Not only is it the half-way point of the financial year, it is also a pivotal time for most small and medium-sized businesses, because this time of year brings the cash flow crunch that tends to happen from December through until January/February. Typically, this cycle is something that occurs annually over the holiday period, and most businesses get out ahead of it, by planning for it.
But if the Christmas cash flow crunch is really taking a toll on your business, or conversely, if you were relying on a particularly strong Christmas trade that just didn’t happen, now is definitely the time to assess.
It’s not necessarily a matter of figuring out what’s going wrong ... but it is a matter of figuring out what’s going on.
When under threat, many businesses immediately look at solutions that involve assessing the competition, deciding to price match, discount, or change their product or service offering. And while these strategies can work in the short term, they usually end up having a detrimental effect on cash flow and profit margins, adversely affecting the businesses’ overall financial health.
Essentially, while this kind of thinking offers some obvious tried and true solutions that might get you some quick runs on the board, it’s reactive, rather than proactive and it can be corrosive long term.
It’s important to really consider what’s right for your business – both now (as you deal with the crisis, no matter how minor or major) and into the future.
And while this may definitely include potentially re-shaping your product or service offering, it’s also about looking at other financial strategies which can better support your business for the long term.
If you don’t already have a financial planner on your team it’s worthwhile considering one. while an accountant can help you with the running the day to day, and keeping the cash flow in check as well as taxes, a financial planner can help you to devise other financial strategies and investments which help the business build a solid financial base, as well as strong reserves if needed for contingency plans.
This is really what will hold you in good stead during the times that business flattens out, or the environment changes and you need to take time to adapt.
If we can help, contact us.